After the Italian Jobs Act Paolo Sestito Paolo Sestito * Bank of - PowerPoint PPT Presentation

After the Italian “Jobs Act” Paolo Sestito Paolo Sestito * Bank of Italy Labor Market Reforms: Lessons from Both Sides of the Alps b k f f h d f h l Paris, 7 June 2019 * The Bank of Italy and the Eurosystem bear no responsibility for the analyses and conclusions, y y p y y , which are solely those of the authors. I thank Emanuele Ciani and Eliana Viviano for suggestions and the permission to use their most recent elaborations

Outline 1. 2010s’ Labor Market Reforms in Italy : a comprehensive agenda but with some aspects either missed or practically undelivered 2. A focus on contractual arrangements (temporary vs permanent contracts): what done contracts): what done 3. 3 Th The counterfactual evidence about its impact t f t l id b t it i t 4. A step back? Factors behind it and preliminary evidence about its impact 2

1. 2010s’ Labor Market Reforms in Italy • Strengthening of a universal UB system (widening UB coverage and access, while dismantling some rather long-duration sectoral schemes) h ) Done • Setting up of an effective national ALMP system (never before experienced in Italy and intervening upon a set of regionally fragmented institutions) g ) Failed • Tackling employment contracts dualism substantially increased Tackling employment contracts dualism substantially increased over the previous 15 years Important novelties introduced, currently under partial dismantling currently under partial dismantling • Towards a more decentralized and more flexible (also over time) collective wage bargaining system ll ti b i i t Listed but finally missed

2a. Individual dismissals in 15+ firms in the old Art 18 regime in the old Art 18 regime Permanent contract employees’ individual dismissal: no severance payment (but for a financial penalty due to the disbursement of a deferred payment fund) However, if the dismissal is judged to be unfair (by a judge, after a generally lengthy worker’s initiated litigation): g y g y g ) monetary compensation in small firms possible reinstatement in 15+ firms Hence: Hence: Uncertain costs, which may become large (in expected terms) only for firms 15+ Workers getting eventually a compensation when less needed Workers getting eventually a compensation when less needed Implications: Disincentive to firm’s growth [statistically significant, but economically not very large: Schivardi&Torrini, 2008] i ll t l S hi di&T i i 2008] Widespread firms’ preference for temporary contracts (and other non standard arrangements, e.g. “parasubordinate” arrangements )

2b. A flagship issue Whatever its material impact, that of Art. 18 had become a very controversial issue, used by economic agents as well as international observers as a “signal” of the underlying international observers as a signal of the underlying tendencies Gradual easing in the use of temporary contracts as a way out for firms: increase in labour market dualism (both equity and efficiency concerns) efficiency concerns) Repeated political attempts (and failures) to change Art 18, by: D’Alema centre-left government (1999) Berlusconi centre-right government (2002) Berlusconi centre right government (2002) During the 2010s, Fornero reform (2012) and then the Jobs A t (2015) Act (2015)

2c. A new contractual arrangement, but also a further easing of temporary contracts further easing of temporary contracts The JA limited to very few cases the possibility of reinstatement, reducing and strictly predetermining (with a 1 to 1 mapping to reducing and strictly predetermining (with a 1 to 1 mapping to seniority) the compensation due in case a judge deemed as unfair the individual dismissal in firms 15+: • less uncertain and slightly lower (expected) firing costs in 15+ firms Notice: Notice: • no change in firms below threshold (but previous status for firms overpassing the 15 threshold) • G Grandfathering, as new rules applied only to new df th i l li d l t permanent contracts (including conversions to perm) At the same time, Poletti decree eases temporary contracts . Furthermore, hiring subsidies are massively used in order to stimulate employment (and political acceptance of the reforms stimulate employment (and political acceptance of the reforms, albeit unions are too weak to oppose them)

3a. Impact evaluation Overall, both temporary and permanent hires increased and both components appear to be more reactive to output fluctuations both components appear to be more reactive to output fluctuations comparing 2014S1 and 2017S1, the [Bovini&Viviano, 2018]; former rose across the board and the latter in the 15+ firms The evolution of gross hires and contract conversions in small (<=15 employees) and medium-large firms (15+ employees) (a) Permanent gross hiring and conversions (b) Temporary gross hiring Source: Bovini and Viviano (2018). Based on the authors’ calculations using data from Veneto Lavoro (Comunicazioni ( ) g ( Obbligatorie). The figure plots the cumulative number (thousands of people) of gross permanent hires and conversions (panel a) and gross temporary hires (panel b) in the private non-agricultural sector of the northern region of Veneto.

3b. Focusing upon the JA (comparing firms 15+ to 1 ‐ 9 firms) [Sestito&Viviano, 2018] firms) [Sestito&Viviano, 2018] Increase in gross and net permanent hires. Slight reduction in the bias against hiring directly on a permanent basis an “unknown” worker Table 3: Firms 15+ vs. others (excluding firms 10-14): gross and net hiring of permanent workers. a b Notes : a Robust standard errors; p values in brackets. * significant at 10%; ** significant at 5%; *** significant at 1%. Gross Net Gross Net Ratio known hiring hiring hiring hiring workers c 0.102 0.032 0.085 0.016 -0.028 [0.000]*** [0.000]*** [0.000]*** [0.005]*** [0.001]*** Fixed effects no no yes yes yes 3,448,1 3,448,1 3,448,1 3,448,1 16 16 16 16 118,563 Observations d Firms 117,298 117,298 117,298 117,298 51,518 Average dependent variable 5.05% 0.34% 5.05% 0.34% 55.8% b All models include a “post” dummy, month dummies, and the province-level unemployment rate interacted with firm class-size. c Sample of firms with positive gross hiring. Share of workers who had past work experiences within the firm in total hires of permanent workers. Conversions excluded. l d d d Firm * number of months in the sample.

3c. Focusing upon workers “at risk” of being converted to perm status [Sestito&Viviano, 2018] perm status [Sestito&Viviano, 2018] Increase in conversion rates from temp to perm Hiring subsidy effect is however larger Hiring subsidy effect is however larger Table 5: Veneto; Probability of contract conversion. a b Being employed in September 2013 or 2014, Full sample with no open ended job position 0.0042 0.0028 0.0041 0.0024 [0.000]*** [0.000]*** [0.000]*** [0.000]*** 0.015 0 015 0.0177 0 0177 [0.000]*** [0.000]*** Fixed effects yes y y yes yes y y yes Fixed effects Individuals 185,559 185,559 140,423 140,423 Individuals Notes : a Linear probability models. Robust standard errors; p values in brackets. * significant at 10%; ** significant at 5%; *** significant at 1%. Workers who find an open- ended position at time t, are excluded from the sample from t+1 onwards. b All models include a “post” dummy, month dummies, and the province-level unemployment rate interacted with firm class-size. c Individuals * number of months in the sample

4a. The problems left out Firms still prefering temporary contracts which can (but do not have to) be converted into permanent positions: ) p p Conversions more likely whenever the worker has alternative chances (tighter labor markets, higher skills..) Weaker bargaining power of temp workers (monopsony power vs Weaker bargaining power of temp workers (monopsony power vs less nominal downward rigidities) may counterbalance the «safety» premium of perm positions y p p p How to intervene: Regulate temp contracts (peaking in 2017): • • Administrative fixed limits? [less renewals Administrative fixed limits? [less renewals, lower overall lower overall duration ..] • Administrative conditions? [allowing them in strictly predefined cases] • Increasing social security contributions? • • Putting overall quantitative limits? Putting overall quantitative limits? Fully eliminating the perm/temp status difference

4b. The policy novelties Decreto dignità (July 2018) , while avoiding to reshape the legal principles underlying the JA, drastically changed the picture: • More limits to temporary contracts (less renewals, lower overall duration need to insert specific clauses beyond a overall duration, need to insert specific clauses beyond a 12 months period, slightly increasing social security extracosts) • Sharp rise in the (seniority related) compensation due in case of unfair dismissal case of unfair dismissal The Constitutional Court (Autumn 2018) stated that judges, in case of unfair dismissal, need not to limit to seniority parameters f f i di i l d t t li it t i it t in fixing the compensdation due to the worker: • more uncertain and higher again (expected) firing g g ( p ) g costs in 15+ firms